Tagged: Demonetisation

Paytm will give a rating to users on its platform based on their digital transactions online.
M Devan | Monday, February 26, 2018 – 09:04 | The News Minute

The Digital India push may receive a fillip through the efforts by Paytm to launch its own credit score Paytm Score, very much on the lines of the CIBIL credit rating that has been the only parameter on which the Indian banking system has been approving loan applications.

The record of digital transactions users have carried out within the digital payments major’s ecosystem will be the basis on which it will make the evaluation of creditworthiness of an individual. Paytm has its e-wallet, Paytm Mall and also the booking platform across which customers use their digital payment modes to make payments.

These transactions will form the basic data which will be fed into the appraisal system and the ratings given. These ratings can then be shared by Paytm with lending agencies with whom it has already entered into partnerships and it has already added to its stable, a lending vertical Creditmate, which it acquired organically a few months ago.

Apart from this, Paytm has an agreement with ICICI Bank for offering short-term credits on an interest-free basis and these loans are sanctioned without any delay.

The credit rating program may itself become a financial product for Paytm and it is learnt that it has offered this to some online lending agencies and NBFCs interested in moving away from CIBIL.

The demonetization move by the Indian government, in late 2016, has helped Paytm expand its business and that has, in turn, brought in high profile investors, such as SoftBank. With that backing, the company is now able to focus its attention on growing all the verticals under its management.

With Paytm Mall and Paytm Payments Bank already doing well Paytm has expanded into new segments such as insurance, online grocery delivery with BigBasket, online ticket booking, initiatives to set up a money market fund, the partnership with PVR and more. The firm might want to evolve into a large conglomerate of services.

MUMBAI: Even as a lot of thrust is being given to the affordable housing segment, a report has flagged concerns about the growing delinquencies in this segment, which are expected to continue in 2018.

Competitive pressures and larger exposure to the self-employed are the prime reasons for the build-up of stress in the segment, a joint report by Moody’s and its domestic affiliate Icra said today.

“While asset quality is expected to remain stable in the traditional housing segment, delinquencies could further build up in the affordable segment in the calendar year of 2018,” Icra’s structured finances head Vibhor Mittal said.

In a note on asset backed securities (ABS) co-written with its parent Moody’s, the report said gross-nonperforming assets in the affordable housing segment have inched up to 1.8 per cent as of September 2017.

The average cum 90+ days past due level for affordable housing was nearly seven times the level observed for traditional housing loan pools, it said.

Going into the reasons for the higher stress in the low ticket size loans, Mittal said, “this would be driven by factors like intensifying competition– resulting in some easing in lending standards — and a higher share of lending to the self-employed segment.”

It can be noted that the Modi government is targeting to ensure that there is a house for all by 2022 and has provided a lot of incentives for the affordable housing segment, including making it as a priority sector lending for banks and huge interest subvention and direct cash subsidy.

However, housing loans continue to be seen as the best performing retail loan asset class in the country, demonstrating low and stable delinquencies over the years, in 2018, it said.

This is possible because of the underlying collateral, which is self-occupied residential property, absence of steep correction in property prices and moderate loan to value ratios, the report said.

Moody’s said the impact of demonetisation and the implementation of the goods and services tax (GST) will lead to higher delinquencies in ABS for loans against property (LAP) to small and medium enterprises.

“Introduction of a GST in July 2017 and demonetization have placed stress on the SME sector,” Icra’s assistant vice- president Dipanshu Rustagi said.

The report also said auto ABS-backed by commercial vehicles loans will remain stable on the back of healthy domestic economic growth.

Icra said the microlending segment is on a “road to resurgence” after the note-ban setback with an increase in repayment rates to 94 per cent in September from the low of 87 per cent seen during December 2016 during the peak of the note-ban move.

Aggressive pricing of home loans by banks and higher income disclosures by customers after demonetization may see a shift of home loans from home finance companies (HFCs) to banks. With property valuation coming off, the attraction to shift to NBFCs for higher loan amount is also waning.

However, the HFCs say the market will expand as the income disclosures will go up and the secondary market, which was predominantly cash, will now go through the white economy, enabling banks and bigger HFCs to capture the market.

Keki Mistry, vice-chairman and chief executive officer, HDFC, told DNA Money, “The market size for home loans will expand as income disclosures will be higher and more customers will get bankable. The cost of funding for banks have certainly come down but no one is going to price a home loan based on temporary deposits like the savings deposits, as these savings deposits are now flowing into mutual funds, insurance and other higher yielding investments.”

Religare Securities said in a report that the ability to assess cash income and a high-risk appetite are key growth factors for NBFCs, “Now, some categories of borrowers whose disclosed income has risen after the note ban may become eligible for bank loans.”

Nearly 80% of the people buy homes directly from the primary market that is builders and most of them pay by cheque. The remaining 20% is the secondary market where cash is a predominant mode of payment.

“Now we can have access to that market as well as cash component is likely to be negligible, and hence the average loan size will go up if the entire value of the property is paid in cheque. Besides banks have CRR, SLR and priority sector that add to their cost. But certainly the silver lining is that due higher income disclosures and the so-called unproductive money moving into the white economy will improve prospects both for the primary and secondary markets,” Mistry said.

Analysts say that even HFCs, especially the larger ones, have seen a drop in their funding cost to the extent of 1% over the last six months.

Religare report said, “Direct selling agents have stated that valuers have reduced loan-to-value (LTV) ratios and raised the haircut assumptions on property value. Pre-demonetization, most balance transfers would take place between NBFCs and also from banks to NBFCs, in order to increase the loan amount or provide flexibility in loan repayment. This has come to a grinding halt as property valuations have come off. ”

Gagan Banga, vice chairman & managing director, Indiabulls Housing Finance, told DNA Money, “We deal with fully banked customers based on disclosed and reported income. Being AAA-rated allows us to borrow from the bond markets at very fine rates and that combined with our significantly lower cost income ratio letting us price loans across products including home loans and loan against property (LAP) on par with banks.”

In anticipation of the property prices correction, customers are going to keep away from purchases or take loans against property. The demand for home loans and also LAP is already slowing down. “The margin expansion story enjoyed by HFCs from lower borrowing costs and a richer loan mix is unlikely to be sustained,” the Religare report said.

Rating agency Icra said in a separate report, “Given that around 60% of the borrowings for HFCs are at fixed rates of interest, and the assets are largely on floating rate, it is likely to get impacted more on account of their relatively higher operating cost ratios.”

The government is looking to provide higher tax incentives on home loans to boost demand and prop up the faltering realty sector that has been further hit by demonetisation.

Sources indicated some concessions may be offered in the Union Budget to increase the tax benefit on payment of interest beyond the annual Rs 2 lakh, a measure that is expected to provide a fillip to the employment-intensive segment and please taxpayers.

The move to enhance the tax concessions comes soon after the Centre prodded banks to pare interest rates, including on home loans, in the wake of massive inflow of deposits. The government is, however, yet to make up its mind on reworking tax slabs.

Sources said the extent of increase on home loans had not been worked out. In the past, too, the government has been favourable towards demands from the construction sector given it is employment generating and helps boost demand for cement, steel and other construction material.

While there is an expectation that the Modi government could reach out to the middle class through tax concessions, there is a view in the government that expected gains from demonetisation will flow only from the next financial year and the Centre may have to loosen its purse strings to boost public spending.

Companies which were already holding back on capacity addition due to high debt and low demand, are unlikely to rush in with fresh investment over the next few quarters given that consumers are holding back purchases post demonetisation. The real estate sector, affected by a spate of delays and low demand in the wake of high interest rates, has been particularly hit by demonetisation.

A recent study by consulting firm Knight Frank estimates a 44% fall in demand, resulting in revenue loss of Rs 22,600 crore since November 8 when Rs 500 and Rs 1,000 notes were scrapped.

MUMBAI: Housing finance firms downplayed stress in the real estate sector as fallout of the sudden demonetisation early last month in meetings with regulator National Housing Bank, but fear consumer sentiment expects prices to fall, and that could hamper home sales in the coming months, crimping growth, multiple sources familiar with the matter told ET.

In the past two weeks, NHB has held three meetings in Delhi, Mumbai and Chennai with 81 housing finance companies to assess the impact of demonetisation.”We have held regional level conferences of housing finance companies (HFC) assessing the situation in light of demonetisation,” Sriram Kalyanaraman, CEO of NHB, told ET. “We also discussed the challenges and opportunities in this sector and also how the HFCs can work more towards fulfilling the Housing-for-All goal (by 2022).”

Kalyanaraman did not elaborate on the challenges but some participants said they drew the regulator’s attention to escalating consumer expectations on falling prices. Rental yield and mortgage loan yields have fallen to about 3.4% (tax adjusted), which could be a key trigger to rake up housing demand from home buyers living in rented accommodation now, a head of a large HFC said.

Findings-

Many consumers are holding back their decision as they expect sharp fall in prices.This could hurt home loan demand, they said, seeking NHB’s intervention to scotch such speculation. The regulator believes that there could be some short term corrections (10-15%) in home prices but it would eventually rise when genuine tax payers line up for transparent deals.

The regulator encouraged HFCs to promote small value affordable housing finance loans to coax salaried people being keen on buying homes. “We do expect a surge in affordable housing both on supply and financing side,” said Kalyanaraman, thanks to falling interest rates, higher transparency with RERA (Real Estate Regulation Act) and expected lower land prices.

New Delhi/Mumbai: The Reserve Bank of India (RBI) on Saturday unexpectedly ordered banks to deposit their extra cash with it, in a bid to absorb excess liquidity generated by a government ban on larger banknotes.

Many Indians deposited their old notes with their banks after the ban on Rs500 and Rs1,000 notes on 8 November, which is aimed at tax evaders and counterfeiting.

Banks had put some of this cash into government bonds, sparking a rally that saw the benchmark 10-year bond yield fall more than 50 basis points to its lowest in more than 7-1/2 years.

The central bank said banks would need to transfer 100% of their cash under the RBI’s cash reserve ratio from deposits generated between 16 September and 11 November, saying it was a temporary measure that would be reviewed on or before 9 December.

Traders called it a drastic move intended to dent the rally in bond markets, adding that the RBI could have opted for more modest measures such as sucking out some of the liquidity through sales of market stabilisation bonds or telling banks to park funds under reverse repos.

The action could also temper market expectations that the central bank would cut interest rates by 25 basis points at its next policy review scheduled for 7 December, after already easing them by the same amount at its last review in October.

“The move is more of a ham-handed one than the finesse expected from the RBI,” said Shaktie Shukla, founder of boutique investment advisory firm Kaithora Capital.

“The liquidity sweep will definitely halt the down move in (bond) yields,” he added. “It will also temper the euphoria pre- RBI policy.”

The move is likely to drain over Rs3.24 trillion from the banks, according to Reuters estimates.

Traders said bond market yields could rise 8-10 bps on Monday, given that the RBI move would deprive the key source of funding seen in the past two weeks, while banking shares would likely take a hit.

Bond investors had also bet India’s demonetisation action would dent economic growth as consumers held back on purchases, raising the prospect of a rate cut by the RBI.

At the same time the bond rally had increased hopes it would lower borrowing costs in the economy and allow banks to reduce some of their lending rates.

On Friday the central bank also relaxed its liquidity auction rules by expanding its basket of securities that it accepts as collateral. Reuters

There is currently a lot of debate happening on how the government’s demonetisation move will impact the real estate sector. The Nifty Realty Index fell almost 12% on Wednesday, purely on sentiment. While the bellwether indices are hinting at dark days ahead, these fears can at best be called unfounded when it comes to the Indian real estate business.

Let’s look at how the major real estate segments will fare:

Residential real estate: The primary sales segment is largely influenced by home finance players, and these deals tend to be facilitated in a transparent manner. This segment will, therefore, see at best a limited impact in the large cities, though some tier II and tier III cities, where cash components have been a factor even in primary sales, will see a business crunch. The secondary or resale market will, however, certainly get impacted, given the fact that this segment does see the involvement of cash component.

Commercial real estate: There will be a minimum impact on office/industrial leasing and transactions business, given that cash components do not play a significant role in such transactions.

Real estate investment markets: Projects could get stretched as informal sources of capital may not be available. This, in fact, spells more opportunities for institutional capital. FDI, private equity and debt players will suddenly find the market even more transparent and attractive. Moreover, banks could start funding land transactions, thereby decelerating land prices.

Retail real estate: Retailers could see some impact on their business in the short-to-medium term due to reduced cash transactions. The luxury segment is likely to be hit because of the historically high incidence of black money acceptance in this segment. However, credit/debit cards and e-Wallets should come to the rescue. Overall, the domestic consumption story remains intact, with no threat to the overall strength and growth of the Indian retail industry.

Land sales and leasing: Where land transactions have been happening in the realm of joint ventures, joint development or facilitating corporate divestments, will see very little impact of the demonetization move. This is because JVs, JDs and corporate divestments are all quite institutionalized, with little or no cash involvement. However, those carrying out direct land deals will doubtlessly suffer – especially when it comes to agricultural land transactions, which tend to involve significant cash involvement.

Developers: There will be minimal impact on large institutionalised players with a solid brand and governance framework. Sales largely driven by the salaried class or investors with limited cash involvement would not suffer. Smaller developers are understandably very concerned right now because many of them have depended on cash transactions. We are very likely to see a clean-up of non-serious players due to this ‘surgical strike’ on the parallel economy. The impact of RERA will further discipline the industry, which will be good for its health in the long term.

Hotels and hospitality-related real estate in the organised sector will see a very negligible impact by the demonetization.

Impact of Trump’s Triumph

It is a bit early to make any accurate predictions on the full impact of Trump’s victory in the US presidential election on Indian real estate. Megan Walters, Head of JLL’s Asia Pacific Research, says we may see some volatility in currencies within the APAC region as the news is digested and risks are assessed.

For real estate investors, currency gains might be sufficient enough to prompt global investors to execute exit strategies on cross-border investments. In fact, large institutional investors would be well-advised to implement investment strategies now, before the market picks up again. Asia Pacific, and to some extent India, could stand to gain if investments pick up.

On the larger front, the overall sentiment implied by statements that Trump has made so far with regard to India can have some positive political implications. That said, there are definitely concerns in terms of how Trump’s win can affect outsourcing to countries like India. The country’s real estate sector does depend a lot on the commercial real estate demand generated by this sector. Likewise, the entire IT/ITeS sector has had a direct correlation to residential demand in the country.

What can be said with any degree of certainty is that there are some very interesting times ahead.

(Anuj Puri is Chairman & Country Head of JLL India. Views expressed in this writeup are his own and do not represent those of ETMarkets.com)